Waterlogged Hoboken: Series of water main breaks show the downside of privatization

A water main break swallowed a car, caused flooding in basements of homes near by and low water pressure for the City of Hoboken on Thursday. Associated Press

Conservative doctrine holds that government can't do anything right and that the private sector does everything better and more efficiently.

Some have used that rationale over the past couple of decades to push for privatizing all kinds of services traditionally provided by government agencies. And, in many cases, public officials, typically facing budget shortfalls, have agreed to turn over government operations to private companies in exchange for hefty fees.

It's hard to dispute the charge that government rarely functions perfectly and often wastes a lot of money in poorly executing its functions. But the assertion that the private sector always performs superbly in carrying out tasks government formerly did is dubious at best.

And in the case against the claim that privatization cures all ills, we offer Hoboken, N.J., as Exhibit A.

As reported in the Jersey Journal, beginning in 1994, the city sold the rights to operate the municipal water system to United Water. All told, the city netted $13.2 million in the four payments made by the company between 1994 and 2001. The money was used to close deficits in the city's budget.

The company is required to contribute $350,000 a year to pay for repairs to the water distribution infrastructure in the aging city under the terms of the 30-year contract. And the company has certainly lived up to the letter of the agreement in making repairs. The trouble is those repairs are just the bare minimum, given the need to upgrade the entire system.

Hoboken's ancient water supply system needs a lot more than that.

That was borne out in the last week when four water main breaks plagued the city. True, one was caused when a contractor's backhoe punctured a 30-inch main, but the others were simply the result of decaying infrastructure. The recent mix of freezing and warm temperatures hasn't helped. Given the age of the system — some mains are a century old — more ruptures are likely.

A spokesman for United Water insisted, "Over the last 19 years, we have diligently abided by the operation agreement. We contributed more than is required by the agreement to the repair fund.

Mayor Dawn Zimmer doesn't dispute that claim, but says in general that the water main breaks show that privatization turned out to be a bad deal for the city.

"We are paying the price for investments that should have been done long ago," Mayor Zimmer said. "In the 1990s Hoboken was facing several budget deficits. Rather than balancing the budget by cutting costs and raising revenues [former] Mayor [Anthony] Russo and the administration sold the profits of our water system and used those payments to plug the budget holes instead of fixing our infrastructure."

United Water's contract with the city expires in 2024. Mayor Zimmer wants to draft a plan with the company to govern future operations, but said her administration is "evaluating all our options." One is to buy out United Water's contract entirely. Or the city could negotiate a new one.

She said that the deal was "unbelievably short-sighted," and that, based on United Water's financial statements, had the city kept control of the water system, it could have generated water tax revenue of $240 million, with a potential net profit of $100 million after costs.

Presumably, those costs would have included the expense of upgrading the water system properly to avoid the bursting pipes that have flooded the city for days.

So the next time someone tells you privatization of government services is always the solution, just point to waterlogged Hoboken.